Do volume spikes indicate institutional buying?

  They very well could, particularly if the spikes are in the millions of shares range. Institutions (mutual funds, insurance companies and the like) usually like to buy as discretely as possible, something that is easier to do when a stock has a large float. When good news hits a stock or other factors work to push institutions to move into or out of a stock quickly, we can see volume spike up. As noted before, we get a hint institutions are involved when the average volume is already fairly high and we see a spike: it would take too many individual investors to push a stock with a daily average of 5 million shares to triple share volume on a day.

We love to see volume spikes while a stock is moving through its consolidation. These should occur on days when the stock advances slightly versus declining. The spike on an advance indicates there is accumulation associated with the volume. When watching a stock move through a sideways or flat consolidation on low volume, volume spikes of two to three or more times average volume get us excited. They are flags waving in our face saying 'get ready.' Investors are accumulating the stock and at some point soon, demand is going to outstrip supply, and we are going to see the price race ahead on heavy volume.

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